China Brings Down the Sickle and Hammer on Rio Tinto

Last week, China, with its inexhaustible ability to scare the shit out of Western corporations and governments, stoked the concern of Western conglomerates doing business in the Far East by indicting four employees from the British-Australian mining juggernaut Rio Tinto. Allegedly, the employees accepted bribes and stole trade secrets from China’s state-run steel companies last summer. The allegations came after negotiations between Rio Tinto and Chinese steelmakers failed to reach an agreement on iron ore prices. The case raises a troubling question: Will China start using its authoritarian muscle to kneecap corporations that don’t give its companies a good deal?

Part of the reason this episode is so startling is that it represents an unexpected intrusion of the CCP into foreign business transactions. It’s always been assumed that China represents a paradox: an authoritarian regime that somehow managed a free market economy while staying out of its own way as much as possible. So what does the Rio episode mean? There are a couple opinions:

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Steve Dickinson at China Law Blog

](http://www.chinalawblog.com/2009/07/chinas_rio_tinto_arrests_every.html) doesn’t see what the big deal is. You are not immune to Chinese law just because you are foreign or work for a foreign business. If there is bribery afoot, China has the right to investigate.

But, to paraphrase Donald Clarke at George Washington University : WHY THE FUCK IS THIS EVEN A STATE CRIME? Corporate espionage and bribery in most countries are causes for civil, not criminal, court. Then there is the fact that the charges as reported by Xinhua don’t make much sense. Xinhua says the accused "lured the Chinese enterprises’ heads with promises, or through other illegal means, to obtain the steel companies’ commercial secrets." But Rio Tinto is accused of taking bribes, not giving them. As the case stands, it’s unclear how the Rio Tinto employees would induce Chinese companies to give them money and information for nothing. As Clarke writes: "You offer bribes to people to get their secrets; people don’t give you secrets and money. The money and the secrets are supposed to go in opposite directions."

The thing is, the CCP is at the mercy of the economic beast it has unleashed. The Mephistophelian contract the Communist Party has signed means it has similar obligations to its citizens that CEOs have to shareholders: it has to keep business booming, or it doesn’t get their support. The promise of prosperity has to be maintained for the CCP to maintain legitimacy. Since Reform and Opening in the late ’70s, the CCP has pursued free market principles so ruthlessly it would make Ron Paul blush: keeping inflation low, protecting private property, and deregulating markets.

But this means that the CCP should have by now learned the meaning of "competitive advantage." We can’t yet know if the Rio Tinto case is an example of the CCP using the law to give Chinese producers a leg up. But in a place where state and business interests are so easily confused, it would not be surprising to see Chinese business and state fit together, hand in boxing glove.